Brazil’s weakening domestic market and a slowing global economy are weighing on Brazil-related exchange traded funds, but Brazil’s central bank is taking action to help alleviate the stress.
The iShares MSCI Brazil Index Fund (NYSEArca: EWZ) is down about 20% over the past three months but has rebounded in October.
Brazil’s central bank reduced its key interest rate to 11.50% Wednesday in an attempt to help the ailing economy, despite ongoing concerns about the high inflation rate, report Tiago Pariz and Asher Levine for Reuters.
Loose monetary policies make a country’s currency less attractive to foreign investors. The WisdomTree Dreyfus Brazilian Real Fund (NYSEArca: BZF) is off about 12% for the trailing three months. [Assessing Risk in Brazilian ETFs]
Central bank chief Alexandre Tombini believes that the slowdown in Brazil and the global economy will help keep a lid on inflation. Some economists believe the central bank’s decisions are prudent in light of the worsening international outlook.
Tombini hopes inflation will recede back to 4.5% on the global headwinds. Meanwhile, Brazil’s inflation rate is currently at 7.31%, above the 6.5% target ceiling.
“But inflation rates are not yet pleasing (the market). The latest inflation number was still bad and expectations for 2012 are getting worse,” Ricardo Denadai, an economist with Santander Asset Management, said.
The bank projects an economic expansion of 3.5% while economists believe the economy will grow 3%.
iShares MSCI Brazil Index Fund
For more information on Brazil, visit our Brazil category.
Max Chen contributed to this article.